830 Relief to certain companies liable to foreign tax

Summary

This section provides a measure of double taxation relief for companies which derive dividends or interest, which have been subjected to “external tax”, from the investment in foreign subsidiaries of profits which have been relieved from income tax, corporation profits tax or corporation tax under the “export sales relief” or the “Shannon” provisions. The relief is confined to interest and dividends arising in countries with which double taxation agreements are not in force.

Details

(1) “external tax” is tax payable in the country in which the company paying the tax is resident and which tax equates with Irish income tax or corporation tax or both these taxes. The country must be a country to which this section applies. Tax payable under the law of a province, state or similar division of a country or tax levied by a municipality or local authority cannot equate to Irish income or corporation tax.

(2) This section applies to countries with which Ireland does not have a double taxation treaty.

(3) Where a company (referred to as the “investing company”, that is, the Irish resident company which has obtained “export sales relief” or “Shannon” relief or certain other reliefs) pays corporation tax on some part of its income arising in a territory to which the section applies and where the 3 conditions specified are fulfilled the Revenue Commissioners may grant such relief as is just. The relief is not to exceed one-half of the corporation tax which would otherwise be payable on the income or the amount of the foreign tax on the income, whichever is the less.

The conditions which must be fulfilled are —

• the income must be a dividend or interest received from a subsidiary company (the paying company) resident in the foreign territory (that is, a company not less than one-half of the voting power in which is controlled directly or indirectly by the company claiming the relief),
• the dividend or interest must be shown to have arisen from an investment by the investing company in the paying company which was made out of profits in respect of which the investing company has received export sales relief under Part XXV of the Income Tax Act, 1967 and Part IV of the Corporation Tax Act, 1976 (where the export sales relief is at a rate less than 100%, only that lesser percentage of those profits is to be taken into account in calculating the total “exports” profits which can give rise to the qualifying investment) or out of profits which were disregarded under the old Shannon provisions in the Finance (Miscellaneous Provisions) Act, 1958, Part XXV of the Income Tax Act, 1976 or Part V of the Corporation Tax Act, 1976 (the relief does not apply to Shannon relief under the Finance Act, 1980),
• the investing company must have paid tax on the income in the foreign territory.

(4)(a) External tax paid includes external tax paid directly and underlying external tax that is, tax paid in the foreign territory by the paying company (the subsidiary) on its income and out of which the dividend or interest is paid to the investing company (the parent).

(4)(b) The method in paragraph 8 of Schedule 24 of computing the “underlying” tax appropriate to a dividend which is used in the general double taxation relief also applies to the computation of “underlying” tax for the purposes of this section.

(5)(a) The relief only applies in the case of territories with which Ireland does not have a double taxation agreement. There is an over-riding limitation on the relief which ensures double taxation relief is not given under the section to the extent that the aggregate of the foreign tax and the double taxation relief would exceed Irish corporation tax which would be payable if all of the income had arisen in the State.

(5)(b) For the purpose of computing the amount of the Irish tax below which the aggregate of the Irish and foreign taxes may not be reduced, the amount of the foreign dividend to be included in the computation is the gross amount of the dividend (before deduction of withholding tax) increased by any underlying tax which the parent company is regarded under subsection (4) as having paid.

(6) Relief under the section is to be given as a credit against the corporation tax on the income referred to in subsection (3)(a).

(7) A 6 year time limit applies to claims and an appeal procedure for matters in dispute applies.

Relevant Date: Finance Act 2021